Budget Friday: Submission 8

Budget Friday: Submission 8

Hey everyone! Welcome back to another episode of Budget Friday. This is seriously my favorite part about personal finance, the chance to help others get on a budget, get out of debt and reach their financial goals. I love showing the power of a well-thought out budget plan, and the long term results they can have.

Today’s budget is an anonymous submission by Adam.

Background: Adam is a graduate student working his way through school (GO ADAM!) and reached out to help get his budget sorted out so he can move to a better locale and not have to take on any debt to do so. I know it’s common to use student loan money to live off of during graduate school, so I commend Adam for taking this on.

Assets:

Emergency fund – $3000

Replacement Car fund – $2700

Roth IRA – $9000

Other Investments – $700

School is paid for

Debts (Balances):

Credit Card – $450, but should be paid off by the time I post this.

Goals:

$5,000 Emergency Fund

Continue saving for replacement car

Max out Roth IRA (if possible)

Priorities:

An avid tea drinker (costs about $50 a month)

To be able to order take out or hit up a bar once or twice a month without blowing the budget

Here is his budget:

OLD

NEW

Comments

Starting Balance

$ –

$ –

Total Income

$ 1,990.00

$ 1,990.00

Total Expenses

$ 1,060.00

$ 1,700.00

Projected Ending Balance

$ 930.00

$ 600.00

Income

Monthly Income

$ 1,240.00

$ 1,240.00

Misc

$ 750.00

$ 750.00

Total Income

$ 1,990.00

$ 1,990.00

Bills

Rent

$ 470.00

$ 640.00

Rent will be increasing when moving to the new place.

Utilities

$ 80.00

$ 80.00

Cell Phone

$ 40.00

$ 40.00

Cable/Internet

$ 85.00

$ 45.00

Cut the cord! Do it, and I promise you will not miss it. If there’s something on cable you ABSOLUTELY need to watch, I’m sure you can see it at a friend’s place 🙂

Total Bills

$ 675.00

$ 805.00

Necessities

Groceries

$ 125.00

$ 150.00

Let’s cut the fast food down and adjust the groceries up a bit. I used to live on $120 a month for food when in college, but I don’t think it was SUPER healthy, so let’s do $150.

Restaurants

$ 80.00

$ 40.00

It’s tit-for-tat, but I suggest making some of this money “spending cash” so it doesn’t always have to be spent at restaurants. I have found sometimes that making a budget for a category makes you think you need to spend it there, and I suggest lowering this one.

Fast Food

$ 40.00

$ 15.00

Tea

$ 50.00

$ 50.00

Auto Expenses

$ 90.00

$ 90.00

Spending Cash

$ 40.00

This is cash to spend on whatever you want. This helps keep things loose so you don’t feel too constrained and then end up blowing the budget all the time.

Total Necessities

$ 385.00

$ 395.00

Savings Buckets

Replacement Car

$ 100.00

If you see a newer car needed in the next year or so, I’d keep funding this at $100 a month. Should put you around $4,000 in another year. Enough for a great used car.

Roth IRA Monthly Contribution

$ 0.00*

Unfortunately, not working in the summer means you can’t quite max this out, but if you find that you’ll have summer income, you can bump this to $450 a month.

Emergency Fund

$ 100.00*

If things stay as they are, you might have to drain most of your EF to get through the summer. See notes below for strategies to combat this.

Total Other

$ –

$ 500.00

Total Expenses

$ 1,060.00

$ 1,390.00

Nice work on being debt free and building up almost $10k in investments while still in school. That is truly impressive!

Debt Snowball

Not much to say here. You’re debt free. JUST KEEP IT THAT WAY!

Goals

1. $5,000 Emergency Fund

* This is an awesome goal. I think with the volatility in your income you SHOULD have a larger emergency fund until you’re out of school and have stable income. Unfortunately, not working during the summer means you’ll probably have to drain all the money you save in here unless you can find an opportunity to make some extra income. If you need any ideas on that, I just had a recent post on here listing 20 ways to make extra income.

2. Continue saving for replacement car

You stated in our emails that your car is over 10 years old and is showing signs of it’s age. I commend you for saving ahead of time. I say keep throwing money into this fund a little at a time, because the worst thing that could happen is have it die on you and leave you stranded with no vehicle and not much money to fix or replace it. With no income in the summer, this savings bucket will be very important.

3. Max out Roth IRA (if possible)

* When I was 18, I put $6,000 in a Roth IRA (max that year). I then put $5,000 in it the next year. I haven’t been able to fund it since (mostly because I blew all my money), and am pretty bummed about that. Just playing with retirement calculators shows me the potential of maxing out this IRA. But a Roth IRA won’t pay your rent if you don’t have any income during the summer. If you can find a way to earn some summer cash, you can throw it all at this, and even recommend that you do!

* I suggest saving that $600 a month to carry you through the summer. You have about $1,400 of expenses per month, and will need $4,200 to make it through the summer. Once summer it over, you can save up another $4,200, and then throw the rest at your Roth IRA until summer hits again. Sound good?

Final Thoughts

You’ve got a frugal head on your shoulders (not that your head is inexpensive….I’m sure it would cost a lot to replace…I more mean your brains…but not like a zombie….uhhh…nm). You obviously are on your way to building a bright financial future, and you are in your Great Depression college broke years. Sticking to a budget now will build in some AMAZING habits before the money comes rolling in, allowing you to approach your finances with a clear plan.

With the summer months up in the air in terms of income, it’s hard to set solid plans except to expect that the money won’t be there and save for it. Also, this still allows you to move, save for a car, have some spending cash, and keep on sippin’ when the hot water’s a drippin’! (wow, that was terrible. I apologize for that). I always air on the side of caution, but if you end up with more cash, you know where to put it 🙂

Comments: So, what do you think? Is there anything you would have changed about my proposed budget? I’d love to get some reader feedback on what you would do. Adam is on a tight budget, but isn’t that what college is for? I think he can find odd summer jobs to help max out that Roth, and he is going to be MILES ahead of the competition financially when he enters the workforce. Serious potential here, and I’m super pumped for him. What about YOU?

Comments

There isn’t much I would have changed on this. For a student this is a pretty tight budget and I love he planning with the emergency fund as well as the car fund. It is never too early to start investing either. Keep up the great work.Alan@escapingmydebt recently posted..Financial Respite for Single Moms

Wow that is a tight budget… is the $640 the best rent he could get even with roommates? I’m not sure what kind of tea he drinks, but $50 a month seems like a lot. I didn’t see any healthcare costs in there – I imagine Adam has health insurance through his grad school, but there are still lab fees, prescription fees, etc. to be paid if he gets sick.Well Heeled Blog recently posted..How do you decide where to live?

He is a tea connoisseur, and though $50 seems high, he said that is what it costs to be fully stocked. Not sure if the $640 includes roommates, but depending on where in the country he is, $640 ain’t bad (like, compared to where I live). And good call on the healthcare costs. For now, we’ll have to wrap that into the EF, but if he sees a constant cost each month, he can definitely add that in.

Woohoo grad student personal finances!!! Adam, please come check out our blog – we live on a very similar budget per capita and have nearly the same income.

One caveat about the Roth IRA – and I know I say this all the time so sorry to those who have heard it repeatedly before – but you can only contribute if you have earned income, which many students don’t have. So Adam, please be careful if you do contribute that you have enough W-2 income to cover the contribution – 1099-MISC income does not count as earned. But there’s not much that can make up for the extra time retirement contributions will have when you start them during grad school, so if at all possible do make the contributions!

It’s hard to say without knowing where Adam lives, but I do recommend having at least one roommate while in grad school unless housing is suuuuper cheap, which it doesn’t look like it is if he’s living alone. If the $640 is with a roommate, then that’s fine.Emily @ evolvingPF recently posted..March 2013 Month in Review: Money

Good call on the Roth requirements. Luckily, he does make enough ‘earned income’ throughout the year to contribute. And I agree on the roommate thing. I was never told whether or not this is with a roommate, just that it was a goal of his to move to this place, and that $640 was the cost.

Considering I never had any sort of budget at that age, I think he’s doing great. The great thing about being a student is that you can live so cheaply. The hard part is that you’ll want to increase your lifestyle when you start making some money. Hopefully, since he seems like a great planner, it won’t happen. Starting out with no student loans would be wonderful!Kim@Eyesonthedollar recently posted..My Worst Customer Service Experience Ever

Well done Adam you are well ahead then most students in school. I have to ask what type of tea you drink? I’m British and I drink quite a few each day but not near $50 a month. A box of 80-100 bags costs me a couple bucks and lasts me a 2 weeks. If you meal plan or learn to cook new recipes at home you can make that grocery budget of yours work and even save some of that cash I’m betting. I think Jacob has given you some excellent suggestions to move around your cash to make it work for you. Good Luck mate!Canadianbudgetbinder recently posted..Saturday Weekend Review #14- Credit Card Surcharges, Would You Pay Them?

Thanks Mr. CBB. And yes, Adam, listen to what Mr. CBB has to say about meal planning. Their family eats well on $190 a month!!! So you could definitely bring the grocery budget down a little bit with some meal planning.

Wow Adam – old guy here and you are doing much better than me & spouse were at your age. We lived well below the poverty level with a little one no less. You are doing great. Just keep doing what you’re doing. You’ll be fine. Been there, done that. Good for you !!!!!!!!!!!!!!!!!!!!!!!!!

He’s got a great start, doesn’t he? I had about that amount of savings at his age, but then stopped caring. Luckily I started caring again once I got married, but I could have been a LOT further ahead by now.Jacob recently posted..Budget Friday: Submission 8

Hello, it is Adam (the person whose budget was done in the post). I knew the tea drinking would turn a few heads, but these are Japanese, Korean and Chinese loose leaf teas. I agree it would be hard to get up to 50 dollars a month drinking tea bags. It is a bit of a hobby of sorts, and borders on an addiction. I guess you could say this falls under my “coffee” habbit as it is my method of choice for caffeine.

I get paid for my Teaching Duties via a W-2, and it counts as earned income so its perfectly fine for me to contribute to my Roth IRA with that money.

This Misc income is a mix of Tutoring income, Earnings from various Websites I have, and gifts from family members, that usually is pretty close to 750 dollars a month.

Also Jake, left this little note out, I intentionally plan my budget as though I have no income during the summer as none is promised. Though the Misc income does not dry up ( actually its usally a bit better because I can pick up a few more k-12 students whose parents want them thinking about math over the summer). The reason I really plan like it will not be there is because my main source of income the Teaching Assistant duties are not promised at my level as a student, but I have been able to pick up some sort of other source of income, even if it is an extra 500 dollars a month.

Meet Jacob

I'm a husband, father, and budget nerd who loves taking complex financial problems and breaking them down into a simple, easy-to-follow financial plan. It all started after getting engaged over 6 years ago... Read More…

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Information presented on iHeartBudgets is intended for informational purposes only and is not meant to be taken as financial advice. While all attempts are made to present accurate information, it may not be appropriate for your specific circumstances and information may become outdated over time. I am not a personal finance professional and you should seek out a professional before making any financial decisions.